An HMO mortgage is in effect a BTL mortgage based upon a House of Multiple Occupation. Generally they are considered a higher risk than a normal BTL mortgage. This is because not all your rooms may be filled at the same time and the rates therefore are generally a little higher. Many HMO mortgage rates though are the same as if you had purchased in the name of a Ltd Company. So it is worth speaking to your tax advisor to find the best solution for your individual circumstances. They can help determine whether you should be buying in your own name or in the name of a Ltd Company.
Securing the best rate will depend upon a number of factors that we at can assist with. Some ideas of what can affect the HMO Mortgage rate are:-
What experience do you have as an HMO landlord?
Some lenders will not accept inexperienced first time landlords for HMO’s. This is because they are more complicated to manage as a business. Others will consider first time landlords, however if you have no experience you are a greater risk and therefore will probably be paying a slightly higher rate to secure your HMO mortgage.
Type of tenants / bedrooms
Most HMO Mortgage lenders will go to 5 bedrooms. If you have property with more than 5 or 6 then you maybe looking at more specialist lenders that charge a higher rate. Many HMO mortgage lenders will not accept DSS tenants.
If the HMO is effectively a large house then it will be generally valued as a house rather than as a commercial property or investment. This can be beneficial to the rate offered as if the HMO can be transformed back into a house then the potential resale market is bigger in the event of a repossession. If the property is more of a converted commercial building such as a nursing home / B&B etc then this is again more specialist lending and the rate will reflect this. You are more likely to get a valuation based upon the investment value though rather than the bricks and mortar if you have this type of property.
HMO mortgages tend to take a little longer than a vanilla BTL purely based on having all the information that is required. If you have read our other guides and got your ducks in a row regarding planning / licensing etc then the process can be quite quick.
Is the property an existing HMO
If the property isn’t an HMO and doesn’t have a license or planning the chances are you are going to need to take out a bridging loan. This will enable you to purchase the property, carry out any building regulations that are required along with applying for a license and ensuring change of use to C4. Once these are in place you can remortgage as an HMO. Our advice is to look to bridge for 6 months as you can then realise the new market value if you have made significant improvements.